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Recovery on course; stable on key pillars

Shoppers Stop (SSL) reported in-line recovery at 75% with the key highlight being that festive sales have already touched pre-covid levels in certain regions. Other highlights: i) Performance on its key pillars continues to be on track with private label/beauty/omni contributing 14%/17%/8%. ii) Targeting 100/181 department/home & beauty stores by FY23 (current: 80/161). iii) Appointed two new board members to strengthen omni initiatives. Rolling forward the valuation to FY23E, we maintain the target at 9x EV/EBITDA, which factors in our recovery expectations (pre-covid oneyear average: 7x). We retain ‘HOLD’ with a revised TP of INR301. Sustained traction in key pillars will be a driver for SSL’s re-rating.

In-line performance; festive recovery at pre-covid levels

SSL reported a 1.2x YoY revenue jump (in line) with stores operational for 87% of Q2 (sales recovery at 75% of Q2FY20). Gross margin came in at 38%, similar to Q1FY22, but better than 32% seen in Q2FY21. Gross margin still remains lower than pre-covid (~42%) due to higher ecommerce share. Cost base though remains lower than precovid, which SSL plans to sustain. On recovery, SSL highlighted that while July was muted due to multiple lockdowns and Maharashtra being completely closed, August and September witnessed a sharp recovery. Also, management stated that festive sales recovery stands at more than 100% in east India, followed by north India.

Stable on key pillars; new board members to strengthen omni

SSL’s private label mix was constant at 14% (Q2FY21: 15.5%, Q1FY22: 14%). Besides, the beauty segment’s contribution was at 17% (Q2FY21: 15%, Q1FY22: 19%). SSL has lined up many launches during the year, including three new Beauty by Shoppers Stop stores by December. Omni channel sales grew 103% YoY with the share of ecommerce at 8% (Q1FY22: 18%). Also, SSL has appointed 2 new board members: Mr. Arun Sirdeshmukh – SVP & Global Business head, Ola Electric and CEO, Ola Cars in India and Mr. Christine Kasoulis of John Lewis, UK, to strengthen omni initiatives. SSL is targeting to spend INR0.4bn on omni initiatives in FY22 (H1FY22: 0.2bn)

Outlook and valuation: Factoring in recovery; maintain ‘HOLD’

Rolling forward the valuation to FY23, we maintain the target 9x EV/EBITDA, which factors in our recovery expectations (pre-covid one-year average: 7x). We maintain ‘HOLD’ with a revised TP of INR301 (INR276 earlier). An improvement in its key metric pillars in normalized times will be a re-rating trigger.

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